The World Bank approved a $12 billion loan for Pakistan on Friday to help the country alleviate poverty and increase economic growth. Islamabad will receive $1 billion this week while the rest of the loan will be disbursed over the next five years. With a term of 30 years and a low interest rate of two percent, the bank hopes no future bailout will be necessary.
The World Bank’s loan will help Pakistan implement new free market policies that will increase long-term economic productivity. Nearly $600 million of the fund’s first payment will be allocated toward enhancing the energy sector. The bank plans to retarget electricity subsidies for the poorest Pakistanis, improve pricing structures, and open power markets to private competition. Adding accountability and transparency will also prevent government waste.
Chaudhry Mohammad Ashfaq inspects a drip irrigation pumping system for his farm in Punjab, Pakistan. Ashfaq received assistance financing the system as part of a World Bank development program. (Photo: World Bank)
Providing a continuous supply of electricity in Pakistan remains difficult for Islamabad. Local utilities depend on costly hydrocarbon imports to generate power, buying about $1 billion a month in oil to make electricity. Additionally, daily blackouts of several hours are common, especially when demand rises dramatically in hot summer months. Overall, the country faces a 7,000 megawatt shortfall even as up to 44 percent of its citizens are off the grid.
Bank officials said the remaining $400 million of the first disbursement would be allocated for other social welfare and infrastructure enhancements, without elaborating on specific programs. Government social services are facing financial hardship while infrastructure throughout the country needs repair. Many of Pakistan’s wealthy decline to pay their income taxes, shorting the government of much needed revenue. Lastly, the World Bank promised to devote resources to increasing education for children. Since 35 percent of the population is under 15, large numbers of uneducated and disaffected youth could fuel the extremism that Pakistan is desperately fighting already.
Pakistan has received aid from the World Bank before, and part of the loan windfall must go toward repaying previous loans including a separate IMF bailout last September. Furthermore, Pakistan depends on billions in foreign aid each year. Saudi Arabia gave a $1.5 billion grant last year and the EU assisted in a $2 billion bond offering. The United States also contributes about $1.2 billion a year in aid, more than half of which went toward economic rather than security assistance in the last fiscal year. Even with recent assistance from the international community, Pakistan’s government and large population of young people still faces future economic hardship.